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Long before the ongoing COVID-19 pandemic tanked Tennessee’s economy, generating thousands of out-of-work benefit claims, the state’s unemployment trust fund was below a recommended solvency level, making it one of the worst in the nation.

And the state’s unemployment trust fund could run out in 12 weeks, forcing officials to borrow from the federal government or raise business taxes.

This year, Tennessee has had roughly $1.2 billion available in its unemployment trust fund. The fund is paid by businesses that are taxed based on their employees’ wages.

Overall, the balance of Tennessee’s unemployment trust fund would last just 12 weeks, according to an analysis released Thursday by the Tax Foundation, a Washington, D.C.-based think tank.

That’s down from a separate analysis the group did earlier in April, which found the state’s unemployment fund would last 16 weeks.

On Thursday, Gov. Bill Lee said his administration has engaged the University of Tennessee's Boyd Center for Business and Economic Research to generate an analysis of the state's unemployment trust fund.

"There's a lot unknown about what the next months will hold," he told reporters on a phone call after appearing at the White House.

Department of Labor and Workforce Development Commissioner Jeff McCord said in a statement the administration is having economists perform an "ongoing analysis" in an effort to assess the state's unemployment trust fund.

"We are of course concerned with the impact that this unprecedented event is having and are monitoring the situation closely," he said.

In recent weeks, states including California, New York, Texas, Connecticut, Illinois and Massachusetts that also were below the recommended solvency level have started informing the federal government of their potential need for loans to bolster their unemployment funds.

While states can borrow money from the federal government, those below the recommended solvency level can be forced to incur interest payments.

During the 2008 recession, when Tennessee’s unemployment insurance trust fund became insolvent due to the massive increase in unemployment claims, the state opted to increase taxes on businesses rather than borrow from the federal government.

Lawmakers approved a measure that increased the base amount that businesses are taxed to generate money for the unemployment fund from $7,000 to $9,000. At the time, the state put triggers in place to reduce the business taxes based on the total amount in the overall unemployment fund.

The state’s taxable wages on businesses did not return to pre-recession levels until 2018.

Watson said Thursday the difference between the 2008 recession and today is companies that pay the unemployment tax have been forced to shut down. He also said in the aftermath of the 2008 crisis the federal government provided states an infusion of money in various areas.

“So far we haven’t gotten that,” he said.

Watson said in the event that Tennessee’s unemployment trust fund becomes insolvent again, he would prefer to avoid borrowing money from the federal government if there was interest involved.

He said he would be interested in having discussions about future federal funding packages including interest-free loans for states that needed to borrow money for their unemployment funds.

“I would hope that under the conditions that this recession is occurring that the rules might be different,” he said.

The governor said he hopes Tennessee does not have to get a loan from the federal government if its unemployment trust fund runs out.

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